November 5, 2018 – PGHC Holdings and 8 affiliated Debtors (“PGHC” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 18-12537 [Docket No. 1]. The Company, a leading local quick-service pizza restaurant chain in New England operating under the Papa Gino’s and D’Angelo Grilled Sandwiches brands, is represented by Derek C. Abbott of Morris, Nichols, Arsht & Tunnel. Further board-authorized engagements include North Point Advisers as investment banker, CR3Partners as financial advisers and Hilco Real Estate as real estate adviser. PGHC’s petition notes between 1 and 50 creditors; estimated assets between $0 and $50,000; and estimated liabilities between $50 million and $100 million. Documents filed with the Court list PGHC’s three largest unsecured creditors as (i) Hartford Life Insurance Co. ($27.9 million in unsecured mezzanine debt), (ii) Brookside Mezzanine Fund ($12.0 million in unsecured mezzanine debt) and (iii) Sysco Boston Sumitomo ($5.5 million in trade debt).

Sale to Wynnchurch Capital (“Wynnchurch”)

On November 5, 2018, PGHC also announced that it had reached in agreement with private equity firm Wynnchurch; whereby Wynnchurch will acquire the Company. Wynnchurch has also agreed to provide PGHC with debtor-in-possession (“DIP”) financing during the bankruptcy process. On June 29, 2018, Wynnchurch acquired all of the debt issued to PGHC under its second lien credit agreement, which as of the Petition date was approximately $34,218,209 (the “Second Lien Debt”).

In a press release announcing the agreement, the Company states, “The proposed transaction would significantly strengthen the chains’ financial resources, allowing PGHC to remodel and modernize their 141 company-owned restaurants in Massachusetts, New Hampshire, Rhode Island, and Connecticut; open additional restaurants throughout New England; and enhance its online ordering capabilities at all restaurants.”

In a declaration in support of the Chapter 11 filing (the “Wendland Declaration”) [Docket No. 4], the Company’s chief financial officer Corey Wendland disclosed that the sale price agreed with Wynnchurch, subject to higher bids in a section 363 sale process, is a credit bid of $20 million (comprised of Second Lien Debt) plus assumption of certain liabilities.

Store closings

On November 4, 2018, PGHC closed approximately 95 under-performing restaurants. Following these closures, PGHC will continue to have interests in one hundred Papa Gino’s restaurants and 78 D’Angelo Grilled Sandwiches restaurants, including franchise locations.

Events leading to the Chapter 11 filing

The Wendland Declaration outlined the circumstances that led to the Chapter 11 filing; noting in particular (i) the negative impact of a shift from in-restaurant dining to take-away, (ii) higher employee-related costs, (iii) increased competition from national chains and (iv) high debt service levels. The Wendland Declaration states, “The Debtors have experienced a number of factors that have negatively impacted their financial performance and cash flows. Consumer preferences have shifted from in-restaurant dining to delivery and carryout ordering, which require fewer overall restaurants and smaller restaurant size to service the same geographic area. As a result of these shifting consumer preferences, the Debtors’ existing footprint is too large-in terms of both number and size of restaurants. In addition, minimum wage increases across many of the Debtors’ markets combined with higher employee benefit costs associated with health plans have also pressured the Debtors’ cash flows. The Debtors also have faced increased competition and associated price pressure from national chains that have increased their footprint in the Debtors’ core New England markets. In addition to these and other operational factors, the Debtors have a substantial debt load that, as noted above, they have been unable to service and are in default under.”

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